Government directive on must-run solar power plants: Centre's fiat set to hit Transco, Genco

Visakhapatnam: The directive by the Ministry of Power that the solar plants must run may adversely hit the finances of AP Transco and AP Genco.

Former Union Power Secretary and social activist EAS Sarma said on Tuesday that the Ministry of Power issued GSR 752(E) dated 22-10-2021 notifying the Electricity (Promotion of Generation of Electricity from Must-Run Power Plant) Rules, 2021, in exercise of its powers under Section 176 of the Electricity Act, 2003 that would ultimately affect the AP Transco and AP Genco.

There are objections over certain provisions in Rule 3 that might affect the finances of both AP Genco and AP Transco and also the consumers at large in the State.

Citing new rules, Sarma said, "A wind, solar, wind-solar hybrid or hydro power plant (in case of excess water leading to spillage) or a power plant from any other sources, as may be notified by the appropriate government, which has entered into an agreement to sell the electricity to any person, shall be treated as a must-run power plant."

A must-run power plant shall not be subjected to curtailment or regulation of generation or supply of electricity on account of merit order dispatch or any other commercial consideration. In the event of a curtailment of supply from a must-run power plant, compensation shall be payable by the procurer to the must-run power plant at the rates specified in the agreement for purchase or supply of electricity.

Sarma said, in effect, this implies that AP Transco should mandatorily procure electricity from the State's centralised solar power plants, some of them in the private sector, even if it requires the backing down of the less expensive AP Genco's power plants. If, for a technical reason, power from the solar plants could not be procured, the State is required to "compensate" them correspondingly.

"In my view, the directive will cause financial losses to the State PSUs, which have invested heavily in their power plants, run them efficiently and can offer electricity at a much lower marginal cost compared to the private plants or power obtained from inter-State power purchases.

The fixed costs of the State PSU plants is a "sunk public cost" (already incurred by the public) and the real marginal cost to the State is the variable cost, whereas the State has to shell down both the fixed costs and the variable costs plus the profit margin to the private plants."

He said it is unacceptable that the State should ignore such sunk costs and buy power at a much higher cost from private agencies and others.

"I find that the State government has already done a great deal of injustice to AP Genco, one of the most efficient power utilities in the country, by weakening its financial condition, thereby disabling it from buying adequate coal and forcing it to operate some of its units at very low PLFs, just to accommodate procurement of more expensive private power, especially that procured from outside the State, sometimes at astronomically high rates of even Rs 20/kwh."